Vistaprint 2007 Annual Report Download - page 49

customers. We increased the volume of orders being produced at our Canadian facility in each
subsequent month while the volume of orders produced at Mod-Pac decreased. Since September
2005, we have been producing 100% of our North American orders internally.
Technology and development expense. Technology and development expense consists
primarily of payroll and related expenses for software development, amortization of capitalized
software and website development costs, information technology operations, website hosting,
equipment depreciation, patent amortization and miscellaneous infrastructure-related costs. These
expenses also include amortization of purchase costs related to content images used in our graphic
design software. Costs associated with the development of software for internal-use are capitalized if
the software is expected to have a useful life beyond one year and are amortized over the software’s
useful life, which is estimated to be two years. Costs associated with preliminary stage software
development, repair, maintenance or the development of website content are expensed as incurred.
Costs associated with the acquisition of content images used in our graphic design process that have
useful lives greater than one year, such as digital images and artwork, are capitalized and amortized
over their useful lives, which approximate two years.
Marketing and selling expense. Marketing and selling expense consists of advertising and
promotional costs as well as wages and related payroll benefits for our employees engaged in sales,
marketing and public relations activities. Advertising costs consist of various online and print media,
such as the purchase of key word search terms, e-mail and direct mail promotions and various
strategic alliances. Our advertising efforts target the acquisition of new customers and repeat orders
from existing customers. Advertising costs are generally expensed as incurred. Marketing and selling
expense also includes the salaries and related payroll benefits, overhead, and outside services related
to our customer design sales and services support center operations and global partnerships
personnel. The customer support center provides phone support to customers on various
topics such as order status, the use of our website graphic design studio, and free real-time design
assistance. Marketing and selling expense also includes third party payment processor and credit card
fees.
General and administrative expense. General and administrative expense consists of general
corporate costs, including salary and related payroll benefit expenses of employees involved in
finance, accounting, human resources and general executive management. We have incurred and will
incur additional legal and accounting costs in order to comply with regulatory reporting requirements,
as well as additional costs associated with being a publicly traded company, such as investor relations
and higher insurance premiums.
Loss on contract termination. On July 2, 2004, we signed a termination agreement with
Mod-Pac that effectively terminated all then existing supply agreements as of August 30, 2004.
Pursuant to the termination agreement, we paid Mod-Pac a one-time $22.0 million termination fee. As
a result of the termination agreement and the payment we made to Mod-Pac, we recorded a loss from
the termination of the existing supply agreements of $21.0 million. We deferred $1.0 million of the total
termination fee of $22.0 million, representing the effective reduction of the mark-up on costs of
purchased products from 33% to 25% estimated to be purchased over the contract period. This
deferred amount was recorded as a prepaid asset on our consolidated balance sheet at June 30, 2005
and was amortized to cost of revenue over the twelve month term of the new supply agreement.
Interest income. Interest income consists of interest income earned on cash and cash
equivalents and marketable securities.
Other income (expense), net. Other income (expense), net primarily consists of gains and
losses from foreign currency transactions.
Form 10-K
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